Vikesh Garg Vs DC-ACIT(2) (ITAT Varanasi)
ITAT Varanasi allowed the assessee’s appeal and directed the Assessing Officer to grant deduction under section 54F of the Income Tax Act, 1961 for AY 2017-18. The assessee had sold unlisted securities of three companies on 30.03.2017 and earned long-term capital gain of Rs.3,84,93,237/-. Since he proposed to claim exemption under section 54F, the entire sale proceeds of Rs.4,00,43,410/- were deposited in a Capital Gains Deposit Account with UCO Bank, Gorakhpur before the extended due date of 31.10.2017 for filing the return. The assessee accordingly treated the amount deposited as the “cost of new asset” under section 54F(4).
During assessment, the AO noticed that the assessee purchased land measuring 1,000 sq. mtrs. on 16.08.2019 and that the land contained a small house measuring about 500 sq. ft. Treating this as purchase of a new house, the AO observed that the property had been purchased beyond two years from the transfer of the original asset on 30.03.2017. The AO therefore rejected the section 54F deduction, and the CIT(A) confirmed the assessment.
Before the Tribunal, the assessee submitted that the entire sale consideration had been deposited under the Capital Gains Deposit Scheme within the prescribed time. Under section 54F(4), the amount so deposited is deemed to be the cost of the new asset for purposes of section 54F(1). It was argued that if the deposited amount remained wholly or partly unutilized within the prescribed three-year period, the proviso to section 54F(4) provided the mechanism for taxing the relevant capital gain in the previous year in which the three-year period expired. Consequently, subsequent utilization could not justify rejection of the deduction in AY 2017-18.
The Tribunal accepted this contention. It noted that there was no dispute that the assessee had deposited the entire sale consideration in the Capital Gains Account Scheme before the due date for filing the return. By virtue of the deeming provision in section 54F(4), the deposited amount had to be treated as the “cost of new asset”. The question of assessing any unutilized portion could arise only after expiry of three years from the date of transfer of the original asset.
The Tribunal therefore held that the tax authorities were not justified in considering events occurring in subsequent years while determining the assessee’s section 54F claim for the year under consideration. As regards the subsequent purchase of land, the assessee disputed the AO’s characterization of the small structure as a residential building and claimed that it was merely a watchman out house, with construction commencing subsequently. The Tribunal did not adjudicate those subsequent facts, holding that they were required to be examined only in the subsequent years. The CIT(A)’s order on the issue was set aside and the AO was directed to allow the section 54F deduction. The assessee’s appeal was allowed.
Cases Discussed
No judicial precedent/case law has been discussed or relied upon in the supplied order. The Tribunal decided the issue directly on the interpretation and application of Section 54F(4) of the Income Tax Act, 1961, particularly the deeming provision relating to amounts deposited in the Capital Gains Account Scheme and the proviso dealing with unutilised amounts after expiry of the prescribed three-year period.
FULL TEXT OF THE ORDER OF ITAT VARANASI
The assessee has filed this appeal challenging the order dt. 07-12- 2023 passed by the Ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘Ld.CIT(A)’] and it relates to Assessment Year (AY.) 2017-18. The issue urged by the assessee in this appeal relates to rejection of claim u/s. 54F of the Income Tax Act, 1961(‘the Act’).
2. During the year under consideration, the assessee sold unlisted securities of three companies on 30-3-2017 and earned Long Term Capital Gain of Rs.3,84,93,237/-. The due date for filing the return of income for the assessee for the assessment year under consideration was extended upto 31-10-2017. Since the assessee proposed to avail exemption u/s. 54F of the Act, he deposited the entire sale proceeds of Rs.4,00,43,410/- in Capital Gains Deposit Account with UCO Bank, Gorakhpur within the due date for filing return of income. Accordingly, the assessee claimed deduction u/s 54F of the Act against the long term capital gains mentioned above in accordance with sec.54F(4) of the Act by treating the above said deposit as ‘cost of new asset’.
3. During the course of assessment proceedings, the AO noticed that the assessee purchased a land admeasuring 1,000 sq. mtrs., on 16-08-2019. The said land contained a small house also measuring around 500 sq. ft. The assessing officer accordingly treated the purchase of above property as a case of purchase of a new house. The deduction u/s 54F can be claimed only if the new house property is purchased within two years or constructed within three years from the date of transfer of original asset. The AO noticed that the unlisted shares were sold by the assessee on 30- 03-2017 and the above said land including building was purchased on 16- 08-2019, i.e, beyond the period of two years from the date of transfer of original asset. Accordingly, the AO took the view that the assessee has purchased a new house property beyond the period of two years from the date of sale and hence, the deduction u/s. 54F of the Act cannot be claimed by the assessee. Accordingly, he rejected the claim for deduction u/s. 54F of the Act.
4. In the appellate proceedings, the Ld.CIT(A) confirmed the order passed by the AO. Hence, the assessee filed this appeal before the Tribunal.
5. The Ld.AR submitted that the assessee has deposited the entire sale consideration in Capital Gains Deposit Scheme before the due date for filing return of income. Hence, in terms of section 54F(4) of the Act, the deduction claimed by the assessee u/s. 54F should beallowed.The Ld.AR submitted that as per proviso to section 54F(4) of the Act, the un-utilized portion of the deposit amount kept in the capital gain account shall be charged as income u/s. 45 of the Act of the previous year in which the period of three years from the date of transfer of original asset expires. Hence, the AO would get right to assess the income by withdrawing capital gain exemption in the AY. 2020-21. Accordingly, he submitted that the Ld CIT(A) should have directed the AO to allow deduction claimed by the assessee u/s. 54F of the Act.
6. On the contrary, the Ld.DR supported the order passed by the Ld.CIT(A).
7. We heard rival contentions and perused the record. The Ld.AR submitted that the claim u/s 54F is allowable to the assessee u/s 54F(4) of the Act. The said sub-section reads as under:-
“Sec. 54F(4):- The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,- (i) the amount by which- (a)the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub- section (1), exceeds, (b)the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii)the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.” In the instant case there is no dispute with regard to the fact that the assessee has deposited the entire sale consideration in Capital gains account scheme before the due date for filing return of income. Hence as per the deeming provision mentioned in sec.54F(4) of the Act, the amount so deposited in the capital gains account scheme shall be treated as “cost of new asset” in terms of sec.54F(1) of the Act. As per the proviso to sec.54F(4) of the Act, the question of assessing the unutilized amount out of the above said deposit shall arise only after expiry of three years from the date of transfer of the original asset.
8. Accordingly, we are of the view that the tax authorities are not right in taking into consideration the events that took place in the subsequent years. Accordingly, we are of the view that they are not justified in rejecting the deduction claimed by the assessee u/s 54F of the Act. With regard to the events that took place subsequently, i.e., purchase of land, the Ld.AR disputed the assertion of the AO that the said land consisted of residential building. He submitted that the same was watchman out house, which cannot be considered to be a house. He further submitted that the assessee has started construction of the building thereon subsequently. In any case, in our view, all these facts need to be examined only in the subsequent years and not during the year under consideration. Accordingly, we set aside the order passed by Ld.CIT(A) on this issue and direct the AO to allow deduction u/s. 54F of the Act claimed by the assessee.
9. In the result, the appeal filed by the assessee is allowed.
Order pronounced on 22-10-2024 by way of proper mentioning in the Notice Board.
